STUDY ON CITY WILL FUEL REAL ESTATE TAX DEBATE

The debate over Chicago real estate taxes paid by businesses and homeowners is about to heat up.

A study to be released this week by Mayor Harold Washington says Chicago is gradually and needlessly bleeding itself of a stable and fair source of city revenues--real estate taxes.

The 74-page study, compiled by city Comptroller Ronald Picur and University of Chicago professor Terry Clark, disputes the popular notion that Chicago is retarding economic development with a tax climate less attractive than that of the suburbs.

Rather, it says the city has not been allowed to enjoy the tax benefits of the obvious commercial building boom underway within its borders, principally downtown.

The report contradicts, at least as far as Chicago is concerned, a recent study for Cook County Assessor Thomas Hynes. Hynes` study concluded, ''The property tax in Cook County is excessively used and too heavily relied upon as the principal source of local government revenues.''

In fact, while real estate tax bills paid by city residents climbed 48 percent from 1975 to 1984, real estate tax revenues received by the city rose only 14 percent. Adjusted for inflation, city revenues from the real estate tax in that period actually dropped 41 percent, according to the city`s study. Meanwhile, real estate tax revenues reaped by the Chicago Sanitary District in the same period have climbed nearly 121 percent. Cook County`s real estate tax take rose 107.4 percent, the study found.

In other words, the city`s share of real estate tax revenue paid by city property owners has shrunk, although services continue to hold high priority with residents, the report concludes.

While tax rates have risen in the last 10 years among all other units of government that tax city real estate owners, the city`s tax rate has declined from a high of $3.63 per $100 of equalized assessed valuation for taxes collected in 1980 to $2.77 per $100 for taxes collected in 1985.

Moreover, property taxes have dropped from nearly half of the city`s corporate fund revenues in 1971 to just 4.3 percent last year.

To make up the lost real estate tax revenue, says Picur, the city has invented a number of one-time revenue sources and imposed a host of regressive sales and use taxes that have raised serious questions about Chicago`s long-term fiscal management and stability. Major new taxes were a hike in the city`s tax on natural gas usage and the 1 percent city sales tax.

''The city has exhausted the new types of taxes it can impose,'' said Picur. And in addition, the city faces the loss of federal revenue sharing and significant increases in spending for wages, pensions and debt service.

That`s why it is frustrating for city officials to watch building after building go up in Chicago, Picur says.

Picur noted reports that the office vacancy rate in Chicago dropped to 9.4 percent in the second quarter from 11 percent in the third quarter, while the suburban vacancy rate remained at 18.9 percent.

Figures such as that don`t suggest to Picur that Chicago needs to cut real estate assessment levels to lure commercial investment, as Hynes concluded from his study.

''A certain amount of business has to be conducted face-to-face,'' he observed. ''That`s why you have central business districts.'' Yet, ''why can`t we capture that property tax?'' asks Picur.

The reason, he suggests, is that the Chicago City Council would rather nickel-and-dime Chicagoans with new fees and charges than even hold the city`s property tax rate at the $2.77 level set in 1984 for taxes collected in 1985. While the council doesn`t set the rate directly, it does indirectly by setting the city`s revenue and spending priorities.

Holding the rate steady while the assessed value of Chicago`s real estate increases, largely through commercial development, would yield an extra $50 million in city revenues in 1986, Picur said. Freezing the rate would also make it easier to cut the city head tax and cap the city utility taxes--two goals of the Washington administration--he added.

The effect of a rate freeze, of course, would be increased property taxes as real estate values climb.

''To sell a property tax increase in this environment isn`t an easy thing to do,'' Picur said. ''But we need to take a new look at the property tax.''

The study`s findings comparing Chicago with its suburbs and with other cities are especially revealing. For example, it found that Chicago ranks seventh among the 10 largest cities in property tax per capita and ranks well below the average for all U.S. cities.

Moreover, Chicagoans on a per capita basis now pay 22 percent less than their suburban neighbors in all local taxes, the study found.